Methods to Create Effective Customer Journeys for Your Bank

In recent years, there has been an increase in the number of job positions for chief customer experience officers across financial institutions (FI) of all sizes. Those roles were created to help an FI focus outwardly and represent the customers’ points of view. Stated differently, people filling those roles ask the “why” question while most FIs tend to focus only on the “how.”

Marrying the How and the Why
A recent example of an unrealized opportunity to rewrite the customer journey involved branch-initiated loan applications. The process required a customer to come into a branch, sign a piece of paper which was then scanned and sent to the back office for processing. After processing, it was stamped “complete” and sent along for further scanning and indexing.

The staff was asked to improve the process, and they recommended switching the ink used to stamp “complete” from oil-based ink to water-based. By doing so, the ink did not bleed through the document, which was causing it to be scanned as two images. While the process was indeed improved incrementally, the FI did not go far enough, missing an opportunity to fundamentally improve the whole customer journey and realize more benefits for both customers and employees.

Customer journey maps marry the “how” and the “why” into one document. The how is expressed as a simple workflow document, showing the touchpoints of any process. Once the current process is documented, the why questions begin. Why do FIs need a wet signature on this document? Why do the customers need to scan their drivers’ licenses? Why should a customer have to stop into a branch to complete the application?

While having a CCEO is a great start, the most successful FIs focus on creating multiple customer experience advocates, all of whom use customer journey maps to document the hows and ask the whys. FIs that position multiple customer experience advocates across the institution have more desirable outcomes than those that have one person. The trick is getting started.

While there are many tools available to assist in generating customer journey maps, PRI suggests that FIs can be quite effective with a simple white board and some post-it notes.

Don’t become burdened with unfamiliar tools until you’ve built a few maps. Involve staff from all areas, especially those areas that are customer-facing. Create a dashboard or a scorecard and keep track of the improvements. And celebrate successes as you go.

Creating a journey map places the customer at the beginning of the process and requires the FI to think like a customer. For example, customers often find it unacceptable to wait 10 days for their debit card to arrive in the mail after opening a new account. Rather than justifying the process by explaining it, the FI can create a journey map with a goal in mind that helps them reach the next level of service. Asking why at every step along the journey is far more critical than asking how.

How to get started:

  • Choose a process known to create customer frustration.
  • Establish a goal for the customer journey map exercise.
  • Put on the “customer hat” or even experience the journey as a customer yourself.
  • Document all touchpoints.
  • Review each touchpoint and ask why it works the way it does.
  • Research best practice models.
  • Attack the touchpoints, seeking to remove friction and working toward the goal of better customer service.

Customer journey mapping has been proven to be highly beneficial to financial institutions and their bottom line. FIs should teach customer experience advocates to create effective customer journey maps for all significant touchpoints.

The process does not have to be formal. It can be simple. Marrying the how and the why will allow the FI to take advantage of the many benefits and opportunities inherent in customer journey mapping.

4 Critical Success Factors for Bank M&A in 2023

After rebounding in 2021, bank merger and acquisition, or M&A, activity slowed again in 2022, a trend that is likely to continue.

In this economic environment, growth-oriented organizations need to make the most of the limited acquisition opportunities they find. To maximize the potential of sought-after deals in 2023, bank directors and executive teams should recognize the current critical factors that contribute to successful acquisitions.

Modest Growth Expectations
Bank M&A activity accelerated in 2021 from 2020’s pandemic-depressed levels, but the pace fell off again in 2022. By the end of the third quarter, only 123 deals had been announced, compared to 160 deals over the same period in 2021, according to S&P Global Market Intelligence.

The 2023 Bank Director M&A Survey suggests this situation will probably continue. Although 85% of survey respondents said their banks either plan to be active acquirers or were at least open to acquisitions, only 11% said they were very likely to acquire another bank in 2023, and 28% said they were somewhat likely.

Even fewer said they expect to acquire nondepository business lines, such as wealth management, fintechs or other technology companies. So although conventional acquisitions likely will remain the most common type of transaction during 2023, bank M&A activity overall could remain sluggish. 

4 Bank M&A Success Factors
With fewer opportunities available, the success of every deal becomes even more crucial. Bank boards and executive teams must take care to increase the likelihood that acquisitions produce expected results. Four critical success factors can greatly improve the chances, particularly in the bank-to-bank acquisitions that could make up most of 2023’s activity.

1. Detailed Analysis of the Loan Portfolio. Loan quality always matters, but with a potential industrywide increase in credit losses on the horizon, a buyer having a granular understanding of the seller’s loan portfolio is essential to determine if its allowance for losses is adequate.

Current economic expectations and likely rate changes during the interval between a deal’s announcement and completion mean it is important to analyze the portfolio as early as possible during due diligence. Advanced data analytics can help acquiring banks identify patterns — such as certain loan types, industries, geographic areas, and loan officers — that merit special attention.

Additionally, banks should prepare loan valuations as a part of due diligence. They should include expected rate increases in that analysis, as it is important to home in on the metrics that suggest the quality of the deal.

2. In-depth Understanding of the Deposit Customer Base. In addition to reviewing loan customers during credit due diligence, it’s important that prospective buyers also analyze the deposit customer base. Changing interest rates mean liquidity can become a concern if customers leave for higher returns or online competitors.

Pinpointing top customers, identifying the services they use, quantifying the revenue those relationships generate and developing customized communication plans to ease the transition are prudent initial steps. These plans should assign specific responsibility for communicating with customers; management should be ready to implement them immediately upon the transaction announcement, when such accounts become particularly vulnerable.

3. Proactive Talent Management. Although banks normally eliminate or consolidate positions in an acquisition, they still need to retain the best talent. Losing personnel with critical skills could jeopardize the investment thesis of the transaction; banks should identify these individuals before announcing the transaction. Consistent and open communication helps preempt rumors and minimizes employee uncertainty, while early retention bonuses and other tools can target essential team members who might be vulnerable to poaching while the transaction is pending.

Fair treatment for those who leave is also important. Outplacement services, severance packages, and other transition programs are worth their one-time costs for buyers, since they can help assuage negative community perceptions that could escalate quickly on social media.

4. Effective Technology Integration. Not every bank has adapted to digitization in the same way or at the same speed. Glitches in routine processes, such as online account access, direct deposits or electronic funds transfers, can alienate customers and employees, creating a bad first impression for the blended organization.

A gap analysis that identifies differences in virtual banking, remote workplace policies, fintech relationships and other technology issues is an important early step to successful M&A. This analysis should be followed quickly by a comprehensive technology integration plan that draws on the best ideas from each organization.

In view of the mixed bank M&A outlook for 2023, addressing these four broad issues can help bank directors and executives meet their fiduciary responsibility to recognize potential opportunities, while still managing the risk that is inherent in today’s banking environment.

How Strategic Banks Use Micro-innovation to Fuel New Growth

With digital financial experiences booming and young consumers flocking to app-focused banking, institutions are assessing which of their products and services will prove popular in the future and exploring how to ensure growth continues among a new demographic of consumers.

For the 65 million members of Generation Z in the U.S., “going to the bank” or “writing a check” are quickly becoming tasks from a bygone era. A 2021 survey underlined that 32% of these customers would prefer to do all their banking outside a physical branch, which presents banks with an opportunity for their digital products to take the lead.

If digital banking is the way of the future, why shouldn’t banks drop everything and go all-in? For most banks, that’s not feasible — or economically wise. It’s vital that banks understand the importance of solving problems while adding value for the customer. Former Apple co-founder CEO Steve Jobs explained, “when we created the iTunes music store, we did that because we thought it would be great to be able to buy music electronically, not because we had plans to redefine the music industry.” Solely focusing on innovation isn’t a practical strategy; the aim should be to make small bets that lead to big breakthroughs.

Most banks don’t need to adopt an “innovate or die” mindset toward the future to drive change. Not every bank will launch a groundbreaking app, and not every company can be Apple. Nor should there they be. Instead, leaders can look to micro-innovation: A scalable, stepwise growth model that supports agile technology integration and novel processes without a major overhaul to the bank’s core or existing infrastructure.

Flex and Expand the Core
A traditional full core conversion can take a bank five years or more to complete. The digital world won’t wait that long; it’s important that banks start implementing change now with micro-innovation. Rather than reinventing the essential processes that are working, micro-innovation allows institutions to launch services in a parallel run to test fresh ideas and offer new products. A micro-innovation approach allows core processes and revenue streams to remain intact while your institution welcomes the future.

Our partner, Holyoke, Massachusetts-based PeoplesBank, efficiently launched a compelling financial brand, ZYNLO, operating alongside its traditional offerings. The new digital bank is designed for younger customers and offers features to support financial health with tools like Zyng Roundup, Zyng matching and early access to paychecks. PeoplesBank is looking beyond the traditional realm of innovation and embrace new thinking by partnering with social media influencers to spread brand awareness and increase visibility.

Where to Begin?
The best incremental innovations are those that can be brought to market swiftly at an affordable cost. Consider leveraging your customer data to pluck low-hanging opportunities to serve groups of customers while providing valuable insights to improve their financial journey.

There’s an opportunity to start small by implementing a fresh onboarding experience. New customers are oriented to digital solutions; if it makes sense for your customers, consider building in-app account opening and educational tools to help them seamlessly engage with their financial future from their smartphone.

Get attention by testing out new product types and fine-tuning processes. Automatically rounding up transactions and deposit that change into savings, early access to paychecks with direct deposits, mobile-first initiatives and financial education tools like monthly spending reports are all popular among young consumers.

Ready to go further? By collaborating with a knowledgeable fintech partner, your institution can launch a own digital financial brand and deliver compelling hooks, such as invoice factoring, tax tools, credit builders and financial modeling, that better serve a niche group of individuals with shared financial needs and goals. Niche digital banks market to a wide range of geographically dispersed customers centered around identities (African Americans, LGBTQ), professions (doctors and lawyers), or shared life experiences and passions (individuals who have previously been incarcerated, pet owners, newly married couples).

In a time of economic uncertainty, organizations looking to win the moment should approach the future with a flexible and entrepreneurial mindset. Identify where your institutions wants to be, determine what’s required to get there and take the first steps in parallel to what’s already working. There’s no time like today.

2023 Bank M&A Survey Results: Can Buyers and Sellers Come to Terms?

Year after year, Bank Director’s annual M&A surveys find a wide disparity between the executives and board members who want to acquire a bank and those willing to sell one. That divide appears to have widened in 2022, with the number of announced deals dropping to 130 as of Oct. 12, according to S&P Global Market Intelligence. That contrasts sharply with 206 transactions announced in 2021 and an average of roughly 258 annually in the five years before the onset of the pandemic in 2020.

Prospective buyers, it seems, are having a tough time making the M&A math work these days. And prospective sellers express a preference for continued independence if they can’t garner the price they feel their owners deserve in a deal.

Bank Director’s 2023 Bank M&A Survey, sponsored by Crowe LLP, finds that acquisitions are still part of the long-term strategy for most institutions, with responding directors and senior executives continuing to point to scale and geographic expansion as the primary drivers for M&A. Of these prospective buyers, 39% believe their bank is likely to acquire another financial institution by the end of 2023, down from 48% in last year’s survey who believed they could make a deal by the end of 2022.

“Our stock valuation makes us a very competitive buyer; however, you can only buy what is for sale,” writes the independent chair of a publicly-traded, Northeastern bank. “With the current regulatory environment and risks related to rising interest rates and recession, we believe more banks without scale will decide to sell but the old adage still applies: ‘banks are sold, not bought.’”

Less than half of respondents to the survey, which was conducted in September, say their board and management team would be open to selling the bank over the next five years. Many point to being closely held, or think that their shareholders and communities would be better served if the bank continues as an independent entity. “We obviously would exercise our fiduciary responsibilities to our shareholders, but we feel strongly about remaining a locally owned and managed community bank,” writes the CEO of a small private bank below $500 million in assets.

And there’s a significant mismatch on price that prohibits deals from getting done. Forty-three percent of prospective buyers indicate they’d pay 1.5 times tangible book value for a target meeting their acquisition strategy; 22% would pay more. Of respondents indicating they’d be open to selling their institution, 70% would seek a price above that number.

Losses in bank security portfolios during the second and third quarters have affected that divide, as sellers don’t want to take a lower price for a temporary loss. But the fact remains that buyers paid a median 1.55 times tangible book in 2022, based on S&P data through Oct. 12, and a median 1.53 times book in 2021.

Key Findings

Focus On Deposits
Reflecting the rising rate environment, 58% of prospective acquirers point to an attractive deposit base as a top target attribute, up significantly from 36% last year. Acquirers also value a complementary culture (57%), locations in growing markets (51%), efficiency gains (51%), talented lenders and lending teams (46%), and demonstrated loan growth (44%). Suitable targets appear tough to find for prospective acquirers: Just one-third indicate that there are a sufficient number of targets to drive their growth strategy.

Why Sell?
Of respondents open to selling their institution, 42% point to an inability to provide a competitive return to shareholders as a factor that could drive a sale in the next five years. Thirty-eight percent cite CEO and senior management succession.

Retaining Talent
When asked about integrating an acquisition, respondents point to concerns about people. Eighty-one percent worry about effectively integrating two cultures, and 68% express concerns about retaining key staff. Technology integration is also a key concern for prospective buyers. Worries about talent become even more apparent when respondents are asked about acquiring staff as a result of in-market consolidation: 47% say their bank actively recruits talent from merged organizations, and another 39% are open to acquiring dissatisfied employees in the wake of a deal.

Economic Anxiety
Two-thirds believe the U.S. is in a recession, but just 30% believe their local markets are experiencing a downturn. Looking ahead to 2023, bankers overall have a pessimistic outlook for the country’s prospects, with 59% expecting a recessionary environment.

Technology Deals
Interest in investing in or acquiring fintechs remains low compared to past surveys. Just 15% say their bank indirectly invested in these companies through one or more venture capital funds in 2021-22. Fewer (1%) acquired a technology company during that time, while 16% believe they could acquire a technology firm by the end of 2023. Eighty-one percent of those banks investing in tech say they want to gain a better understanding of the space; less than half point to financial returns, specific technology improvements or the addition of new revenue streams. Just one-third of these investors believe their investment has achieved its overall goals; 47% are unsure.

Capital To Fuel Growth
Most prospective buyers (85%) feel confident that their bank has adequate access to capital to drive its growth. However, one-third of potential public acquirers believe the valuation of their stock would not be attractive enough to acquire another institution.

To view the high-level findings, click here.

Bank Services members can access a deeper exploration of the survey results. Members can click here to view the complete results, broken out by asset category and other relevant attributes. If you want to find out how your bank can gain access to this exclusive report, contact bankservices@bankdirector.com.

Overcoming Regulatory Barriers to M&A in 2023

The M&A slowdown in 2022 will shape expectations for 2023, and Adam Maier, a partner at Stinson LLP, believes deals could bounce back by mid-year. Heightened regulatory scrutiny could continue to have a chilling effect on larger bank M&A, he says, but community bank deals have been approved rather quickly. Prospective buyers would be wise to focus on due diligence and communicate with regulators to ease the approval process.

Topics include:

  • Predictions for 2023
  • Considerations for Prospective Buyers and Sellers
  • Working With Regulators
  • Branch Transactions

Risk, Performance and Banking: What Really Matters

The goal of banks is to create financial stability and profit while building strong relationships with customers, employees and the community. What’s standing between your bank and that goal? Asking that question is the first step to finding out.

Banks measure performance in financial terms: they compare loan rates, customer growth and other key performance indicators (KPIs). But looking at performance in this way only shows how things are going, not why they are going that way or how performance could change in the coming weeks, months or years.

Understanding the “why” requires deeper analysis — an analysis that comes from enterprise risk management, or ERM. ERM is a system for managing risk holistically throughout a financial institution to create value. It’s about identifying, assessing, measuring, monitoring, mitigating and communicating risk — and using that information to build a stronger, more resilient institution.

Why should bank boards care about ERM?

1. Compliance Management. Compliance management is a huge concern for any bank. From federal and state consumer protection and privacy regulations to Bank Secrecy Act/anti-money laundering (BSA/AML) regulation, the number of regulations and the speed of regulatory change can be overwhelming.

Not only can non-compliance hurt individual consumers, it can damage a bank’s ability to offer the best-possible pricing, products and services. Failing to comply can result in costly enforcement actions, fines and lawsuits. It can also lead to limitations on growth.

Banks need to have a strong compliance management system, or CMS. This allows them to identify, measure, monitor and mitigate compliance risk. A CMS can also help banks respond more efficiently to regulatory changes by ensuring they implement changes while minimizing the cost of compliance.

2. Vendor Management. Third-party partners like including vendors, fintech partners and consultants can easily increase the potential risk to a bank or its customers. Data breaches can expose customer data. Outages can prevent customers from accessing the products and services they need. Mistakes can result in compliance violations and consumer harm. Automatic contract renewals can cause the bank to sign long-term contracts with unfavorable pricing.

Managing third-party risk requires a good vendor management program. It’s not just a regulatory requirement; it’s also a best practice. Not only can vendor management help a bank secure lower pricing, this required due diligence and monitoring helps banks identify vendor partners that could help the bank grow and thrive.

3. Findings Management. A bank needs to correct identified problems quickly. But it can be easy to lose track of these problems — whether they are self-identified, examiner or audit findings — with the demands of day-to-day responsibilities.

Every bank should have a findings management program that logs every finding, assigns it to someone responsible for remediation and tracks its remediation. This creates accountability that ensures that no finding is overlooked, whether it’s a consumer complaint, a weakness in a control, a vendor issue or a compliance violation.

Risk Performance Management for High-Performing Banks
Each of these three areas of ERM have the potential to hurt or enhance a bank’s performance. Done well, they can better control costs, strengthen the banks’ resilience and more quickly achieve the board’s strategic goals. One of the most effective ways for a bank to gauge its risk and performance is by leveraging expert solutions that provide the frameworks, tools and knowledge that executives and the board need to maximize the efficiency of the process. These solutions can also serve as an educational primer, showing banks what needs to be done and the best ways to do it efficiently, so the bank can follow a clear, well-informed path forward.

These solutions also make it easy to understand where the threats and opportunities are for an institution. This is especially important as banks try to keep pace with evolving technology and consumer expectations. Having the right risk management tools in place directs the executives and employees to quickly ask the right questions when evaluating new technologies, partners and strategies, and understand what those answers mean.

Whether it’s knowing how regulations impact a new product or service, or assessing the maturity of a vendor’s cybersecurity controls, good risk management means having more information sooner to make better decisions — and that leads to better performance.

Tales From Bank Boardrooms

If anyone in banking has seen it all, it’s Jim McAlpin. 

He’s sat in on countless board deliberations since he got his start under the late Walt Moeling, a fellow Alabamian who served as his mentor at Powell, Goldstein, Frazer & Murphy, which later merged with Bryan Cave in 2009. 

“That’s how I started in the banking world, literally carrying Walt’s briefcase to board meetings. Which sometimes was a very heavy briefcase,” quips McAlpin. Moeling made sure that the young McAlpin worked with different attorneys at the firm, learning various ways to practice law and negotiate on behalf of clients. “He was my home base, but I also did lending work, I did securities work, I did some real estate work. I did a lot of M&A work” in the 1990s, including deals for private equity firms and other companies outside the banking sector.

But it’s his keen interest in interpersonal dynamics and his experience in corporate boardrooms, fueled by almost four decades attending board meetings as an attorney and board member himself, that has made McAlpin a go-to resource on corporate governance matters. Today, he’s a partner at Bryan Cave Leighton Paisner, and he recently joined the board of DirectorCorps, Bank Director’s parent company. 

“I’ve gone to hundreds of meetings, and each board is different. You can have the same set of circumstances more or less, be doing the same kind of deal, facing the same type of issue or regulatory situation,” he says. “But each set of people approaches it differently. And that fascinates me.”  

McAlpin’s a consummate storyteller with ample anecdotes that he easily ties to lessons learned about corporate governance. Take the time he broke up a physical fight during the financial crisis. 

“During that time period, I saw a lot of people subjected to stress,” he says. “There are certain people who, under stress, really rise to the occasion, and it’s not always the people you think are going to do so. And then there are others who just fall apart, who crumble. Collectively as a board, it matters.”

Boards function based on the collection of individual personalities, and whether or not those directors are on the same page about their organization’s mission, goals and values. McAlpin’s intrigued by it, saying that for good boards, the culture “permeates the room.”

McAlpin experienced the 1990s M&A boom and the industry’s struggles through the financial crisis. On the precipice of uncertainty, as interest rates rise and banks weather technological disruption, he remains bullish on banking. “This is a good time to be in banking,” he says. “It’s harder to get an M&A deal done this year. So, I think it’s caused a lot of people to step back and say, ‘OK, what are we going to do over the next few years to improve the profitability of our bank, to grow our bank, to promote organic growth?’. … [That’s] the subject of a lot of focus within bank boardrooms.”

McAlpin was interviewed for The Slant podcast ahead of Bank Director’s Bank Board Training Forum, where he spoke about the practices that build stronger boards and weighed in on the results of the 2022 Governance Best Practices Survey, which is sponsored by Bryan Cave. In the podcast, McAlpin shares his stories from bank boardrooms, his views on corporate culture and M&A, and why he’s optimistic about the state of the industry. 

Harness the Power of Tech to Win Business Banking

The process for opening a consumer account at most financial institutions is pretty standard. It’s not uncommon for banks to provide a fully digital account opening experience for retail customers, while falling back on manual and fragmented processes for business accounts.

Common elements in business account opening include contact forms, days of back-and-forth communication or trips to a branch, sending documents via secure email systems that require someone to set up a whole new account and a highly manual document review process once the bank finally receives those files. This can take anywhere from days to multiple weeks for complex accounts.

Until very recently, the greatest competitor for banks in acquiring and growing business accounts was other banks. But in recent years, digital business banks have quickly emerged as a more formidable competitor. And these digital business banks empower users to open business accounts in minutes.

We researched some of the top digital business banks to learn more about how these companies are winning the business of small businesses. We discovered there are three key ways digital banks are rapidly growing by acquiring business accounts:

1. Seamless, intuitive user experiences. Business clients can instantly open accounts from a digital bank website. There’s no need to travel to a branch or pick up a phone; all documents can be submitted online.
2. Leveraging third-party technology. Digital banks aren’t building their own internal tech stacks from the ground up. They’re using best-in-class workflow tools to construct a client onboarding journey that is streamlined from end to end.
3. Modern aesthetics. Digital business banks use design and aesthetics to their advantage by featuring bright and engaging colors, clean user interfaces and exceptional branding.

The result? Digital banks are pushing their more traditional counterparts to grow and innovate in ways never before experienced in financial services.

Understanding what small businesses need from your bank
A business account is a must-have for any small business. But a flashy brand and a great user experience aren’t key to opening an account. Small businesses are really looking for the right tools to help them run their business.

While digital banks offer a seamless online experience, community banks shouldn’t sell themselves short. Traditional banks have robust product offerings and the unique ability to deal with more complex needs, which many businesses require. Some of the ways businesses need their financial institutions to help include:

  • Banking and accounting administration.
  • Financing, especially when it comes to invoices and loan repayment.
  • Rewards programs based on their unique needs.
  • Payments, specifically accepting more forms of payment without fees.

It’s important to keep in mind that your bank can’t be all things to all clients. Your expertise in your particular geography, industry or offerings plays a huge role in defining your niche in business banking. It’s what a lot of fintechs — including most digital banks — do: identify a specific niche audience and need, solve the need with technology, and let it go viral.

While digital banks might snap up basic small and medium businesses, the bar to compete in the greater market is not as high as perceived — especially when it comes to differentiated, high-risk complex entities. But it requires a shift in thinking, and the overlaying the right tech on top of the power of a community based financial institution.

It’s important that community bank executives adopt a smart, agile approach when choosing technology partners. To avoid vendor lock-in, explore technologies with integration layers that can seamlessly plug new software into your bank’s core, loan origination system, digital banking treasury management system and all other platforms and services. This means your bank can adopt whatever new tech is best for your business, without letting legacy vendors effectively dictate what you can or can’t do.

Your level of success in winning at digital banking comes down to keeping the client in focus and providing the best experiences for their ongoing needs with the right technology. While the account itself might be a commodity, the journeys, services and offerings your bank provides to small businesses are critical to growing and nurturing your client base.

Strategic Insights from Leading Bankers: WSFS Financial Corp.

RankingBanking will be further examined as part of Bank Director’s Inspired By Acquire or Be Acquired, featured on BankDirector.com, which will include a discussion with WSFS CEO Rodger Levenson and Al Dominick, CEO of Bank Director, about weaving together technology and strategy. Click here to access the content.

Digital transformation in the banking industry has become an important factor driving deal activity, evidenced by recent acquisition announcements involving First Citizens BancShares, PNC Financial Services Group and Huntington Bancshares. A more tech-forward future also drove $13.8 billion WSFS Financial Corp.’s August 2018 acquisition of $5.8 billion Beneficial Bancorp, expanding its presence around Philadelphia and putting it well over the $10 billion asset threshold. Importantly, it provided the scale WSFS needed to make a $32 million, five-year investment in digital delivery initiatives.

The Wilmington, Delaware-based bank’s long-term focus on strategic growth, particularly in executing on its digital initiatives, led to a fourth-place finish in Bank Director’s 2021 RankingBanking study, comprised of the industry’s top performers based on 20-year total shareholder return. Crowe LLP sponsored the study. Bank Director Vice President of Research Emily McCormick further explores the bank’s digital transformation in this conversation with WSFS Chairman and CEO Rodger Levenson. The interview, conducted on Oct. 27, 2020, has been edited for brevity, clarity and flow.

BD: How does WSFS strategically approach strong, long-term performance?

RL: It comes from the top. The board has always managed this company with the goal of sustainable long-term performance, high performance. Every discussion, every decision and every strategic plan that we put together is looked [at] through that lens. And I would point to the most recent decision around the Beneficial acquisition as an opportunity for us to invest in [the] long term while recognizing that we’d have some short-term negative impact. And by that I mean, if you look back over the last decade or so, coming out [of] ’09, 2010 — WSFS had been on a fairly consistent, nicely upward-sloping trajectory of high performance. … But what the board said as part of our strategic planning process and the conversation with Beneficial was that we could only continue down that path for so long if we didn’t address a couple of important issues.

One was, if you look at that growth, it was primarily centered on our physical presence, mostly in Delaware. It’s our home market, but it’s a pretty small market, less than a million people. A very nice economy, but certainly not as robust as we grew to the size that we had grown to support that. We needed to get into a larger market, particularly into Philadelphia, [which is] very robust demographically, very large to give us that opportunity to continue to grow at above-peer levels.

The second thing as part of that process is like everybody else — and this was obviously all pre-pandemic — we were analyzing and watching our customers shift how they interacted with us to more digital interaction and less physical interaction. And we said, for us to keep up we’re going to have to start shifting some of that long-term investment, that we’ve historically [put] into building branches, into funding our technology initiatives.

The two of those things came together for Beneficial, [which] obviously gave us the larger market; it also gave us the scale to attack that transition from physical to digital. We knew it would impact earnings for a couple of years while we put that together and prepared for the next decade or so of growth. The board had a very robust dialogue around the trade-offs that were involved, and clearly said that we need to manage the company for the long term.

This is a great opportunity to invest in the long term; we’ll take the short-term knock on performance because of where we’re ultimately headed. We saw that with the reaction of the Street to our stock price, but that didn’t change or waiver the long-term vision. … Our board principles and guidelines [have] been ingrained in us all the way down through management: If you want to provide the best long-term value for your shareholders, you have to not get tied up in quarter-to-quarter or year-to-year performance. You have to look at it over longer horizons and make decisions that support that.

BD: How are you strategically approaching technology investment?

RL: It was really a decision to follow our customers. … There’s nothing we can do to try and compete with [the] big guys. You know the stats. You know how many billions of dollars they’re spending on technology. We’re not trying to catch up to them or be like them. We want to have a digital product offering that allows us to be very flexible and have optionality so that when new products and services come along that our customers want, we can move quickly toward offering those products and services, and have an offering that is competitive with the big guys, but maybe not the bleeding edge. We’re marrying it with the traditional community bank model of access to decision-making, local market knowledge [and] a high level of associate engagement, which translates into what we think is world-class service. Our vision is to have a product offering that we can marry up with those other things that will allow us to compete effectively against the big guys.

Most of what the big guys spend their money on is R&D. They have teams and teams of technology people, data [scientists and] all those other things, because they’re building their proprietary products and services. Our view is we don’t have to do that R&D, because that R&D is getting done in the fintech space for us.

BD: WSFS has brought on board some high-level talent around digital transformation; you’ve also got expertise on the board. You’re working to recruit more in the data space, as well as building your in-house technology expertise. In addition to building relationships with fintechs, why is that internal expertise important, and how are you leveraging that?

RL: When we got started on this, we had almost nobody focused on it in the company. We realized for us to be as effective as we felt we needed to be, we needed to have some teams that were fully involved in this as a day-to-day job. In terms of funding it, obviously we closed or divested a quarter of our branches with Beneficial after the deal. When you do that, you not only have the cost savings from the savings in the lease expense, but there’s people expense as well. Fortunately, even though net/net, our positions in our retail network decreased by about 150 from those closures or divestitures, nobody lost their job. We were able to absorb that through natural attrition or in the one case, we sold six of our branches in New Jersey, and all those people were guaranteed a job as part of that deal.

This was a process that occurred over the course of a year. It was methodically laid out, leading up to the conversion of the brand and the systems in August 2019. Over that year, our teams did a fabulous job [of] managing people and the normal attrition that goes on in that business. That gave us the ability to fund not only some of the technology that we’re buying, but also some of these other positions internally. It’s exactly aligned with shifting that investment that we made in branches — which is not just the bricks and mortar; it’s the people, it’s the technology, it’s everything else — shifting a chunk of that into digital. This is a part of that whole process.

EM: How did the pandemic impact your strategy?

RL: The pandemic confirmed and accelerated everything that we’ve seen over the last few years, and reinforced our desire to [respond] as quickly as we can to the acceleration of these trends. Clearly, 2020 has been a totally different year because of remote work and all those things, but the longer-term trends have been validated and reinforced the strategic direction that we embarked upon before the pandemic. At some point, we will start moving back to a more normal environment, and we feel like we’re uniquely positioned.

It feels like there’s not a week that goes by with a bank that’s announcing some big branch reduction program and shifting that money into digital. We’re not trying to pat ourselves on the back, but I do think we happened to have that opportunity with Beneficial. It provided us the forum for attacking that issue sooner rather than later, so we’ve got somewhat of a head start down that road. This is just a confirmation of everything we saw when we did that analysis.

Fueling Future Growth


2017-Compensation-White-Paper.pngOver the past year and a half, there’s been a lot of good news for the banking industry. New regulators have been appointed who are more industry-friendly. Congress managed to not only pass tax reform, but also long-awaited regulatory relief for the nation’s banks. And the economy appears to remain on track, exceeding 4 percent gross domestic product (GDP) growth in the second quarter of 2018, according to the Bureau of Economic Analysis.

Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, finds that the challenges faced by the nation’s banks may have diminished, but they haven’t disappeared, either.

Small business owners are more optimistic than they’ve been in a decade, according to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey. This should fuel loan demand as business owners seek to invest in and grow their enterprises. In turn, this creates even more competition for commercial lenders—already a hot commodity given their unique skill set, knowledge base and connections in the community. Technological innovation means that bank staff—and boards—need new skills to face the digital era. These innovations bring risk, in the form of cybercrime, that keep bankers—and bank regulators—up at night.

For key positions in areas like commercial lending and technology, “banks have to spend more,” says Flynt Gallagher, president of Compensation Advisors. “You have to pay top dollar.”

But a solid economy with a low unemployment rate—dropping to 3.8 percent in May, the lowest rate the U.S. has seen in more than 18 years—means that banks are facing a more competitive environment for the talent they need to sustain future strategic growth.

And regulatory relief doesn’t mean regulatory-free: With the legacy of the financial crisis, along with the challenges of facing economic, strategic and competitive threats, all of which are keeping boards busy, there’s more resting on the collective shoulders of bank directors than ever before, and boards will need new skill sets and perspectives to shepherd their organizations forward.

For more on these considerations, read the white paper.

To view the full results to the survey, click here.